June WTI crude oil (CLM26) today is down -4.54 (-4.27%), and June RBOB gasoline (RBM26) is down -0.1140 (-3.05%). Crude oil and gasoline prices are sharply lower today as the ceasefire in the Middle East appears to be holding, easing geopolitical risks.
Crude prices are retreating as relative calm returned to the Persian Gulf today after US and Iranian forces exchanged fire on Monday in the Strait of Hormuz. Iranian Foreign Minister Abbas Araghchi said today that talks with the US are “making progress” and said events in Hormuz make clear “there’s no military solution to a potential crisis.” Mr. Araghchi is traveling to China today for talks on regional and international developments. The US is pressuring China to help convince Iran to reopen the Strait of Hormuz, as China buys almost all of Iran’s oil exports.
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On Monday, the US Central Command said the US military fought off attacks from Iranian drones, missiles, and armed small boats as it facilitated the passage of two US-flagged vessels through the Strait of Hormuz. The US Central Command said the US military has opened a passage through the strait, and US helicopters have destroyed small boats going after commercial vessels.
Crude prices also have support on signs that the US will maintain its naval blockade of Iran for the foreseeable future. President Trump told his aides to prepare for an extended blockade and that it carries less of a risk for the US than resuming hostilities or walking away from the conflict without securing a deal that curbs Iran’s nuclear activities.
Energy prices remain underpinned amid the Strait of Hormuz’s continued closure, threatening to deepen the global energy crisis. The ongoing blockade could exacerbate global oil and fuel shortages, as about a fifth of the world’s oil and liquefied natural gas transits through the strait. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million bpd, and that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, which could hit a billion bbl by June.
Persian Gulf oil producers have been forced to cut production by roughly 6% due to the closure of the Strait of Hormuz as local storage facilities reach capacity. On April 13, the US began a blockade of all vessels passing through the Strait of Hormuz that call at Iranian ports or are headed there. President Trump said that the US naval blockade in the strait “will remain in full force” until a deal is fully agreed. Iran had been able to export crude during the war before the blockade, as it exported about 1.7 million bpd in March.
Last Tuesday, the United Arab Emirates (UAE) said it will leave OPEC on May 1. The UAE’s decision to leave OPEC, the third-largest producer in the cartel, is potentially bearish for crude prices, as it allows the UAE to boost production without being constrained by OPEC’s output quotas.
On April 13, the International Energy Agency (IEA) said that about 13 million bpd of global oil supply has been shuttered by the Iran war and the closure of the Strait of Hormuz. The IEA also said that more than 80 energy facilities have been damaged during the conflict, and a recovery could take as long as two years.
In a bearish factor for crude, OPEC+ on Sunday said it will boost its crude output by 188,000 bpd in June after raising production by 206,000 bpd in May, although any production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war. OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 827,000 bpd left to restore. OPEC’s March crude production fell by -7.56 million bpd to a 35-year low of 22.05 million bpd. Expectations are that OPEC will boost its crude output when the cartel meets in a video conference on Sunday, May 3.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +1.4% w/w to 149.56 million bbl in the week ended May 1, the highest in 4 months.
The most recent US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war. Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted. The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.
Ukrainian drone and missile attacks have targeted at least 30 Russian refineries over the past ten months, limiting Russia’s crude oil export capabilities and reducing global oil supplies. Bloomberg data show Russia’s average refinery runs in April fell to 4.69 million bpd, the lowest in 16 years. Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea. In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of April 24 were +1.2% above the seasonal 5-year average, (2) gasoline inventories were -2.4% below the seasonal 5-year average, and (3) distillate inventories were -10.3% below the 5-year seasonal average. US crude oil production in the week ending April 24 was unchanged w/w at 13.586 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended May 1 rose by +1 to 408 rigs, just above the 4.25-year low of 406 rigs posted in the week ended December 19. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
